Cost volume profit analysis

Applications of Cost-Volume Profit (CVP) Analysis

CVP relationships information which is useful to managers in a wide variety of planning decisions. Managers use this analytical technique to accomplish far more than just the determination of a break-even point. Example The following problems are based on the information given for company X: S.P (Sales Price) per unit = $25 Variable Cost per …

Applications of Cost-Volume Profit (CVP) Analysis Read More »

Assumptions and Limitations underlying CVP Analysis

The assumptions imposed by accountants in calculating the C VP ratios also serve as the possible limitations of the technique. Most CVP analyses are based on the concept of static cost. All costs can be classified into two categories: fixed costs and variable costs. This assumption is not always true because certain costs like depreciation …

Assumptions and Limitations underlying CVP Analysis Read More »

Margin of Safety

Margin of Safety (MOS) Definition The difference between the actual sales volume. and the break-even sales volume is called the margin of safety. It represents that proportion of the current sale which determines the profit of the firm. Formula to calculate the Margin of Safety Margin of Safety = Actual sales volume – Break-even sales …

Margin of Safety Read More »

Graphical representation of break-even analysis

Break-even chart Cost-Volume-Profit (or Break-Even) relationships can also be portrayed through the use of graphs. This method has the advantage of showing cost-volume-profit relationships over a range of sales. The graphic analysis permits managers to observe areas of profit or loss that would occur for a broad range of sales activity. The data from the …

Graphical representation of break-even analysis Read More »

Scroll to Top